Significant change in businessin the last 30 years due to corperate social responsibility

Electronic copy available at: http://ssrn.com/abstract=1751602Title i Title of submission: Significant Changes in the Business in the Last 30 Years due to Corporate Social Responsibil

Electronic copy available at: http://ssrn.com/abstract=1751602

Title

(i) Title of submission: Significant Changes in the Business in the Last 30 Years due to

Corporate Social Responsibility

(ii) Name of the authors : (1) R Ramakrishnan, PhD Scholar, Alagappa University and

Professor and Head, Department of Management Studies Muthayammal Engineering College, Rasipuram 637408 INDIA

(2) DR R Perumal, Reader in Management, DDE,

Alagappa University, Karaikudi India

(iii) Mailing address:

College: Muthayammal Engineering College, Rasipuram 637408 INDIA

Residence: Suri Illam, 10A Swami Sivananda Salai, Rasipuram 637408 INDIA

(iv) E-mail address : ramakrish54@gmail.com or ramakrish54@yahoo.com (v) Phone number(s) College: +91-4287-220837 and 226837

Residence: +91-4287-225837

Mobile : 919952669656 or 919865812476

(vi) Fax number : 91-4287- 226537

Presented by me

At the meeting of the DSA Corporate Social Responsibility study group

At the Magdalene College, Cambridge University UK

On

17th June 2008

Page 1 of 10 Electronic copy available at: https://ssrn.com/abstract=1751602

SIGNIFICANT CHANGES IN THE BUSINESS IN THE LAST 30 YEARS DUE TO CORPORATE

SOCIAL RESPONSIBILITY

Abstract

Business and industry play a crucial role in the social and economic development of a country They provide 90 percent of jobs, goods and services and they are the main source of tax revenues, which contribute to public funding for health, education and other services Visionary companies have embraced social, economic and environmental responsibilities as opportunities, with the knowledge that responsible practices are not only good for society, but also good for business

Business is a creative entrepreneurial process that provides livelihoods for the majority of the world’s people It has been instrumental in bringing about sustainable development Poverty and development need to be addressed by engaging managers, employers and stakeholders at all levels, building a virtuous cycle within the corporate value chain

Business is about balancing the economic, social and environmental issues over the short and longer-term It is a core human activity and is at its best when it has clear goals and practical targets The role of the Private sector has seen tremendous changes all over the world These changes are very significant for a developing country like India Micro finance and new business models have made the developing countries on the road to development in a big way

No country has ever achieved development in the absence of economic growth The key to poverty alleviation rests in wealth creation Business can provide the resources and technologies that go a long way towards eradicating poverty

Business is the main driver of economic development In the developed world the private sector – led by SMEs – produces the largest portion of a country’s output, creates employment and generates the tax revenues necessary to fund basic services including healthcare, education and other social services This is also true in developing countries as well

This paper looks at the significant changes in the business that has evolved for development due

to Corporate Social responsibility in the last 30 years with special reference to India

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SIGNIFICANT CHANGES IN THE BUSINESS IN THE LAST 30 YEARS DUE TO CORPORATE

SOCIAL RESPONSIBILITY

Business is as old as human civilization Economic activities resulted in division of labor and it also gave rise to exploitation Rules and Laws were created to resolve these problems and one can trace down morals on business from ancient scripture

E.g.; Manu’s edicts; King Hammurabi’s codes etc

Business is a creative entrepreneurial process that provides livelihoods for the majority of the world’s people It has been instrumental in bringing about sustainable development Poverty and development need to be addressed by engaging managers, employers and stakeholders at all levels, building a virtuous cycle within the corporate value chain

Corporate Social Responsibility (CSR) is the soul of every business these days It has also become the password to not only overcome competition but to ensure sustainable growth CSR is

a crucial bridge between organizations and society and also a means to create awareness amongst corporates, NGOs, civic bodies and government of the value and importance of social responsibility to bridge the gap between the privileged and the disadvantaged of society

Fifty years back the prevailing thought was that business is for profit and hence maximization of shareholder wealth is the only objective This view has been wonderfully explained by Milton Friedman He argued that the social responsibility of a corporation is to make money for its shareholders, and considered CSR a “subversive doctrine” that threaten the very foundation of free enterprise society (Friedman, 1962)

In the last 30 years, multinational corporations have played a key role in defining markets and influencing the behavior of a large number of consumers The rules of corporate governance have changed too And there has been a range of reactions to this change This change in attitude of business has resulted in stakeholder management rather than stock holder management Of course, stakeholders also includes shareholders

Page 3 of 10 Electronic copy available at: https://ssrn.com/abstract=1751602

The change in society saw the rise of democratic institutions and a new social structure has come The welfare nation concept became stronger and then it has become the social republic If these were on the political side, we also find government in business on one hand and on the other hand corporate doing many of the jobs done by government

We have public business coexisting with private entrepreneurship The main aims of the public companies were basically to avoid monopoly and exploitation The role of the government and business has changed over the years Business of business is no longer business alone It has to take social responsibilities as it is part of the society

In today’s world fierce competition has given way to co-operation and collaboration and for their very survival corporations has to woo their employees, customers and other stakeholders Business is about balancing the economic, social and environmental issues over the short and longer-term It is a core human activity and is at its best when it has clear goals and practical targets The role of the Private sector has seen tremendous changes all over the world These changes are very significant for a developing country like India Micro finance and new business models have made the developing countries on the road to development in a big way

Business and industry play a crucial role in the social and economic development of a country They provide 90 percent of jobs, goods and services and they are the main source of tax revenues, which contribute to public funding for health, education and other services Visionary companies have embraced social, economic and environmental responsibilities as opportunities, with the knowledge that responsible practices are not only good for society, but also good for business

No country has ever achieved development in the absence of economic growth The key to poverty alleviation rests in wealth creation Business can provide the resources and technologies that go a long way towards eradicating poverty

In the age of globalization, corporations and business enterprises are no longer confined to the traditional boundaries of the nation-state One of the key characteristics of globalization is the

spread of the market and the change in the mode of production The centralized mode of production has given way to a highly decentralized mode of production spread across the world

In the past, when businesses were more or less localized in particular communities, periodic acts of charity or philanthropic gestures constituted CSR Now that the business environment is global, the need then arises for businesses to have deliberate policy and strategy that will capture the entire environment on a systematic and sustainable basis

CSR is closely linked with the principles of Sustainable Development which argue that enterprises should be obliged to make decisions based not only on financial/economic factors (e.g Profits, Return on Investment, dividend payments etc.) but also on both the immediate and the long-term social, environmental and other consequences of their activities

On the one hand globalization and liberalization have provided a great opportunity for corporations to be globally competitive by expanding their production-base and market share On the other hand, the same situation poses a great challenge to the sustainability and viability of such mega-businesses, particularly in the context of the emerging discontent against multinational corporations in different parts of the world Laborers, marginalized consumers, environmental activists and social activists have protested against the unprecedented predominance of multinational corporations

The evolution of CSR and its impact on business in the last 50 years can be seen as

 Social Responsibilities of Businessmen: The 50s and 60s ; Most scholars point to

Howard Bowen’s Social Responsibilities of the Businessmen (1953) as the first attempt

to theorize the relationship between corporations and society (Carroll, 1979; Preston, 1975; Wartick and Cochran, 1985) During the late 50s and 60s, numerous legislations were enacted to regulate conducts of businesses and to protect employees and

consumers

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 The 70s saw the Enlightened Self-Interest: A New Rationale for Corporate Social Policy reshaped the debate by providing a wider lens to examine the issue (Baumol, 1970).A

“new rationale” that upholds CSR without compromising stockholder interest was made

 The 80s saw the Corporate Social Performance Model: Carroll made the three-dimensional conceptual model of corporate social performance (CSP) which gained acceptance and further developed by others (Miles, 1987; Ullmann, 1985; Wartick and Cochran, 1985; Wood, 1991) Carroll combined the three dimensions in corporate social performance which are corporate social responsibility, social issues, and corporate social responsiveness under one rubric Corporate objectives are integrated into the framework of total social responsibility of business As a social institution, corporations need to care for environment and employees as well as make good profits

 In the 90s Peter Drucker and others developed CSR as part of Corporate Strategy The stakeholder model of CSR was developed mainly by management scholars who were frustrated by the lack of practicality of previous theoretical models Stakeholder model solved the problem of measurement and testing by more narrowly identifying the actors and defining their positions and function in relation to one another A unique feature of Freeman’s stakeholder theory is that it envisions a corporation’s purpose in a wholly different way Within stakeholder framework, the difference between social and economic goals of a corporation is no longer relevant, because the central issue is the survival of the corporation Survival of a corporation is affected not only by shareholders, but also various other stakeholders such as employees, governments and customers

 The last decade saw the convergence between the concepts of CSR and corporate performance occurring in both directions CSR expanded to envelop both economic and social interests, on the one hand, while the concept of corporate performance broadened to cover economic as well as social interests This convergence between CSR and corporate performance made the concept of CSR much more attractive to corporate managers at all level, and helped the diffusion of CSR among corporate

In the past, a company's merit was solely based on its financial performance But in the new millennium there is increased pressure from investors, consumers, and employees to consider social and environmental criteria in the way a company carries out its business This has created momentum for using a "triple bottom line" or "sustainable" approach - social, environmental, and financial data for evaluating the performance of a company

Increasingly, stakeholders are concerned that the company they support has business practices that positively impact society while achieving financial success

Corporate reputation is now inextricably tied to corporate responsibility The convergence

of the following five trends

 Business Transparency: In today’s information-driven economy business practices have become increasingly transparent Advances in communications technology, such as the Internet, cellular phones and personal digital assistants, are making it easier to track corporate activities and disseminate information about them Whatever the Companies do (good or bad) will be known, almost immediately, around the world thus places corporations under a permanent microscope

 An increased knowledge base among consumers: Consumers and investors have more information at their disposal than at any time in history and are slowly choosing one brand over another based upon those companies' respective environmental records Similarly they are choosing stocks or mutual funds based on social and environmental criteria apart from financial factors

 The sustainability imperative: In the last thirty years alone, one-third of the planet's resources - the earth's "natural" wealth - have been consumed Many of the natural systems have been altered due to exploitation of business which has resulted in global warming etc Corporations are under increasing pressure from diverse stakeholder constituencies to demonstrate that business plans and strategies are environmentally sound and contribute to sustainable development

Page 7 of 10 Electronic copy available at: https://ssrn.com/abstract=1751602

CSR can be seen as the business contribution to achieving sustainable development goals

It involves business taking account of its economic, social and environmental impacts in the way it operates, in order to ensure a better quality of life for everyone now, and for future generations CSR can be seen as the business contribution to achieving sustainable development goals It involves business taking account of its economic, social and environmental impacts in the way it operates, in order to ensure a better quality of life for everyone now, and for future generations

 Te challenge of Globalization: Globalization represents a new stage of capitalist development, and due to interrelationship no one can live in isolation Globalization has its focus on cross-border trade, multinational enterprises and global supply chains Global corporations are under constant scrutiny by the media, governments, workers, environmentalists, human rights groups and NGOs to incorporate basic CSR standards and sustainability strategies into their worldwide operations

 The failure of the public sector : In most of the developing countries, Public sector has failed miserably and the private sector is called upon to take additional responsibilities

The last 30 years or so have seen a growing interest in voluntary corporate codes These codes have been advanced as a means of regulating the behavior of economic collectives—and especially multinational corporations—and those with whom these corporations interact in the global market Voluntary codes have been crafted to regulate both internal corporate governance and corporate business ethics with a variety of stakeholders, including labor, suppliers, customers and nation-states

Corporate social responsibility considerations are integral elements of business decisions process and they contribute to the global competitiveness and reputation in all areas of business

It is an approach that gets away from the old idea that economic, social and environmental goals are always in conflict

Companies and businesses are increasingly looking to CSR as a proven vehicle to drive greater staff, stakeholder and community engagement Young professionals are so important in driving and maintaining a business culture where CSR is properly integrated into the day-to-day running of the business

Significance of Corporate Social Responsibility to Business

 Better Financial Performance

 Reduction in Operating Costs

 Boost in Brand Image and Reputation

 Increased Sales and Customer Loyalty:

 Higher Productivity and Quality

 Attract and Retain Employees

 Reduced Regulatory Oversight

 Access to Capital

Major Developments in CSR

 Increased Stakeholder Activism

 Proliferation of Codes, Standards, Indicators and Guidelines

 Accountability Throughout the Value Chain

 Transparency and Reporting

 Growing Government Interest and Action

 Convergence of CSR and Governance Agendas

 Growing Investor Pressure and Market-Based Incentives

 Advances in Information Technology

 Pressure to Quantify CSR “Return on Investment”:

Business is the main driver of economic development In the developed world the private sector – led by SMEs – produces the largest portion of a country’s output, creates employment and generates the tax revenues necessary to fund basic services including healthcare, education and other social services This is also true in developing countries as well

Page 9 of 10 Electronic copy available at: https://ssrn.com/abstract=1751602

Small and medium enterprises in India are also awakening to the necessity of adopting a holistic approach to the community They are realizing that being a good corporate citizen is as essential to their long term well-being as being a good citizen in their individual lives It is no longer a question of small enterprises being able to afford being socially responsible, and more a question of the costs involved of not being a responsible corporate citizen

With the growth of consumerism and wealth in urban India, businesses must realize that community awareness and service is not an option but a requirement CSR can no longer be a sub-department of the personnel and HR division of the company There is need for the ownership

of CSR at a much higher level, on par with all other activities and decisions that drive the business Corporate activism must be sustainable and accepted as a valuable change agent of today’s business environment Corporate Social responsibility must have a much broader implication in modern India and reduce dependency on the government for social change

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